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'Tiptoeing' into branch transformation

by James Hawkes, Vice President of Branch Transformation, Bancsource Inc.

During the last decade, community banks in the U.S. may have faced more stress than in any previous period. An "old friend with new ideas," Roswell, New Mexico-based Pioneer Bank is fighting back.

In the latest in a series of steps, the federal savings bank is replacing its ATM fleet and two branches with advanced self-service and video-assist ITMs before year's end — nearly 20 machines in all.

"This is the best way to reduce operating costs and to enhance the customer service experience," said CEO Jon Hitchcock, "with the emphasis on service."

The challenges for smaller banks include the rise of national and nonbank lenders, the increase in regulations and compliance costs, the unprecedented and ongoing technology demands and the dramatic shifts in consumer behavior. One result? Reduced average return on assets.

In the past 15 years, Pioneer Bank has introduced checking accounts, shifted focus from mortgage to retail and commercial lending, doubled checking accounts, added Internet banking, added mobile banking, built a new headquarters and doubled assets. Still, average return on equity remains well below a decade ago.

Today, Pioneer Bank is working with the largest Nautilus Hyosung master, VAR Bancsource, to replace nearly all of its 21 ATMs at its 16 locations. The fleet will increase to 24 machines, 12 of them interactive. This includes replacing two branches this summer with drive-up ITMs with video assist.

"Everyone talks about efficiency with branch transformation," said CEO Christopher Palmer. "That does matter for us. But we only add technology where we can maintain or improve customer relationships. In 2016, we're investing — and it is definitely an investment — in customer service."

Immediate self-serve additions planned for the new ITMs include enabling customers to cash checks, make mixed deposits, choose denominations when requesting cash and eventually make loan payments.

"Adding more self-service capability will help us provide higher levels of customer service at all locations with extended hours," Palmer said. "This in turn will enable our branch staff to better serve existing customers and focus on lending."

Another immediate goal is to manage 'drawn on us' traffic spikes that lessen branch staff's availability to service accountholders. For Pioneer Bank, these happen Friday afternoons when workers from oilfield and other companies queue up to cash paychecks. Branch transformation technology will enable Pioneer to direct the "drawn on us" check cashers to ITMs so staff can focus on regular customers during those peaks.

"For a community bank with 16 locations spread out over 300 miles, the capability to create efficient service solutions is vital," said Bancsource CEO Mychal Kempt, who previously was head of North American sales and services at Diebold.

"Using video banking to provide expertise across expanded areas with extended hours is just one of the many ways smaller financial institutions can tailor intelligent technology to their specific needs," said Kempt. "Branch transformation done right enables you to continually engineer solutions that fit you."

Over time, Pioneer Bank plans to offer through its ITMs any transaction a teller might provide. The management team expects 80 percent of transactions to be nonteller as customers become comfortable with and prefer self-service.

Pioneer Bank's customer care center has already evolved from phone banking to chat banking and now will add video assist. With the rise in mobile banking, Palmer and Hitchcock anticipate that some customers might never step into a branch again.

"Branch transformation will allow us to have our most experienced people on the front lines more often wherever the customer might be," Hitchcock said.

While replacing essentially your entire fleet might seem sweeping, Palmer said the bank is "tiptoeing" into branch transformation. He's not ready to make any bold predictions or overwhelm staff by attempting too much too soon.

"We know there will be some hiccups. We're proceeding step by step," he said. "Our goal is to look more and more like a commercial community bank than a thrift. We hope to gain business, construction and consumer loan business and grow it bigger than mortgage was. We've been really successful so far."

Pioneer Bank is the largest depository financial institution in Chaves County. But management is more interested in return on equity than asset growth.

"We've increased our assets 48 percent over the past decade but return on average tangible equity has decreased by more than 66 percent," he said. "Branch transformation is part of our strategy to improve. We've been working on this a long time."